Funds from veteran investors Giles Hargreave, Harry Nimmo and Anthony Cross are among some of the best-performing strategies since the launch of the individual savings account (ISA) in April 1999.
With the ISA deadline on 5 April fast approaching, some investors will be scrambling to take full advantage of this year’s £20,000 tax-free allowance.
In the 20 years since launch, the ISA has become one of the most popular savings vehicles among investors, offering the opportunity to invest more efficiently.
Despite the popularity of tracker funds amongst today’s investors, the returns made by indices since the launch of the ISA may have been quite disappointing.
Performance of indices since ISA launch
Source: FE Analytics
Over the period, the FTSE All Share index has made a 161.88 per cent total return, while the MSCI World is up by 210.67 per cent and the S&P 500 has grown by 233.68 per cent, in sterling terms, as the above chart shows.
Yet, for investors who had invested with the same active manager and fund over the period, they might have seen some better returns.
“The average fund manager runs a fund for five years, so it’s pretty rare to find managers running the same fund for 20 years,” said Laura Suter, personal finance analyst at investment platform AJ Bell.
“The benefit of investing with a manager who has been running the same fund for two decades or more is that they will have invested through all market cycles, having experienced downturns as well as bull markets.
“These managers will also know their investment markets inside out, they will have been burnt by their past investment errors and will hopefully be wise to these traps in the future, and will know the companies in their sectors inside out.”
As such, FE Trustnet took a closer look at the best-performing funds since the launch of the ISA that have had at least one manager in place over the total period.
With a total return of 2,434.41 per cent since the launch of the ISA until 25 March 2019, Marlborough Special Situations – overseen by Giles Hargreave since July 1998 – is the best performer. In comparison the average IA UK Smaller Companies fund has returned just 538.12 per cent.
Like many of the best-performing funds over the period, it is a strategy focused on smaller-cap stocks. Hargreave has been joined on the now £1.4bn fund by Eustace Santa Barbara since September 2014.
Best-performing funds with a long-term manager since ISA launch
Source: FE Analytics
As the above table shows, seven of the top 10 best-performing funds have a UK small-cap focus.
Other top performers include peers such as Harry Nimmo’s Standard Life Investments UK Smaller Companies fund, with a return of 985.16 per cent, and Anthony Cross’ Liontrust UK Smaller Companies fund, which is up by 944.81 per cent.
“The small companies market historically has grown faster than larger companies and there is a far larger pool of investments for managers to choose from, while managers also argue that there are fewer analysts covering the area making it easier for them to hunt out an undiscovered gem,” said AJ Bell’s Suter.
“With that opportunity comes risk, as there are likely to be bigger scale failures in the small companies market, meaning an experienced fund manager is essential.”
Of the remaining three funds, one is a European small-cap strategy (JPM Europe Smaller Companies), one is focused on natural resources stocks (BlackRock GF World Mining) and one invests in US equities (GAM North American Growth).
The best-performing sector over the period is the IA China/Greater China, where the average fund has turned in a performance of 791.87 per cent. However, there are just four funds with a long-enough track record: Barings Hong Kong China (the best performer with a 1,202.66 per cent return), Invesco Hong Kong & China, Janus Henderson China Opportunities, and Schroder ISF Greater China.
The next best-performing peer group is the IA European Smaller Companies sector, where the average fund has made a return of 577.90 per cent. Here, nine funds have been in operation since before the launch of ISAs.
The IA UK Smaller Companies sector rounds out the top-three best-performing peer groups, with an average return of 538.12 per cent, with 25 funds having been around since the first ISA was launched.
Top-10 best-performing fund sectors since ISA launch
Source: FE Analytics
Conversely, the IA UK All Companies features near the foot of the table with the average fund only up by 162.92 per cent, in line with the FTSE All Share performance over the same period.
The best performer over the period is Fidelity Special Situations – now managed by Alex Wright, but formerly overseen by Sanjeev Shah and legendary investor Anthony Bolton – with a return of 730.60 per cent.
While investing for the long term can be rewarded and some managers have demonstrated superior outperformance, there are some significant issues when considering one of the industry’s veteran investors.
“The downside of this experience is that some investors might be put off investing with older managers for fear they’ll have lost their hunger for investing and become more cautious,” said AJ Bell analyst Suter.
“Investors can check for signs of this by comparing the type of companies the fund manager is investing in now, compared to previous years. They should also be aware of contingency planning, as retirement is a real prospect with some managers who have been running portfolios for a long time.”